The Fed announced its first interest rate cut of the year

• The Federal Reserve announced a quarter-point interest rate cut, the first of 2025.
• The decision follows slowing job growth and rising inflation, challenging the Fed’s dual mandate.
• Criticism from investors and political pressure influenced the Fed’s decision to cut rates.

America is getting a highly-anticipated interest rate change — the first cut of the year.

Federal Reserve Chair Jerome Powell announced Wednesday that the central bank will slice rates by a quarter point. The call aligns with expectations: CME FedWatch projected a near-100% chance of a September policy shift in the days before the meeting.

Powell hinted that slowing job growth could prompt a cut in his August Jackson Hole keynote despite inflation heating up once more. The Fed’s goal is to keep employment and price increases in balance, a dual mission that has been difficult in recent months.

“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside — a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” Powell said in Jackson Hole, adding, “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”

Powell said the central bank’s decisions to hold rates steady for the previous five meetings this year was largely due to uncertainty about President Donald Trump’s trade plans.

Borrowers hope Wednesday’s rate change will provide relief as many economic indicators hit a slump. The consumer price index is at its highest rate since January, the US added far fewer jobs than expected this summer, consumer sentiment is dipping, and job vacancies can’t keep up with the number of Americans looking for work. Though not all is doom and gloom: GDP is recovering from an early-year plateau and unemployment is still historically low.

Before the announcement, FedWatch indicated that market participants thought there was a roughly 65% chance of three cuts by the end of 2025 — one for each of the remaining meetings this year.

Powell has been under pressure to cut rates

Powell’s pattern of keeping rates steady has been divisive, prompting criticism from investors, fellow Fed leaders, and the White House.

Two Fed Governors — Michelle Bowman and Christopher Waller — dissented to July’s hold call, citing “signs of less dynamism and slowing economic growth.” It was a departure from the Federal Open Market Committee’s typical unanimous decision-making.

Trump has also been vocal about his desire for an interest rate cut. In a September 15 Truth Social post, Trump wrote that “Too Late” Powell “MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND.”

Alongside putting pressure on Powell, the president has called on Fed Governor Lisa Cook to resign, alleging that she committed mortgage fraud. A September 13 Reuters report found documents showing her second property was listed as a vacation home, not a primary residence, contrary to the allegations. Cook remains in her seat.

Stephen Miran, chair of the White House’s Council of Economic Advisors and Trump appointee, was narrowly confirmed as a new Fed governor by the Senate on Monday. He will replace Adriana Kugler, who resigned in August. These leadership changes could give the White House more sway over monetary policy in the long run.

It’s unlikely that a single rate cut will have an immediate impact on consumers. Economists have told Business Insider that Americans may have to wait for multiple cuts before they see any substantial change in mortgage rates, auto loans, savings, or credit.

Powell has emphasized that the Fed’s rate decisions will continue to be based on in-the-moment economic data.

“FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” he said in August. “We will never deviate from that approach.”

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